MARKET REPORT
Loonie Listings
Why are 57% of the industrial listings in the GTHA effectively unpriced?
As most have come to understand, $1 listings are indications that an offering is effectively unpriced. For brokers listing on the MLS system, price is a required field and listing brokers are forced to input a number. Listing brokers have employed the $1 price tag (or “Loonie” as in the nickname for our one-dollar coin for our non-Canadian readers) – a rate so obscenely low that it could not be mistaken to be real.
$1 listings aren’t new, but what is extraordinary is their prevalence and usage in today’s commercial real estate market in the GTHA (Greater Toronto and Hamilton Area) and in industrial real estate particularly. Historically you would see sale offerings at $1.00 as an indication that the seller would likely be having an unpriced bid process to sell the asset. That makes some sense, but what about with lease offerings? Why would there be a need for unpriced lease listings? Even in a hot market, there are very few instances where there are multiple groups trying to lease space at precisely the same time.
For instance, I searched the Toronto Real Estate Board for industrial lease listings throughout the region. Out of 346 active listings, 196 of them had an asking price of … $1. That means 57% of all industrial lease offerings are unpriced.
What is the main reason for $1 on lease listings? Market volatility.
While few people have ‘landlord empathy’ it’s an undeniable truth that landlords are experiencing unprecedented volatility on the supply side, and an ever-changing demand side which makes pricing real estate extremely difficult in these times.
Hence, on the supply side, commercial real estate owners and developers face massive and erratic cost changes on building components like structural steel, and concrete, as well as unforeseen planning delays. Pre-pandemic, a developer would likely know their true cost base very early on and have the information to be able to make leasing decisions. With today’s supply-chain issues, developer costs are murky until much further into the construction process, which gives them pause at announcing an asking rental rate.
Additionally, on the demand side, we have a well-documented shortage of real estate – with no shortage more pronounced than in industrial real estate. Rental rates in industrial have effectively doubled in the past 3 years and may continue to rise. Industrial leasing is a long-sales-cycle business. Even in a hot market, the time between when a property is marketed ‘For Lease’, to the time a tenant begins negotiating could be many months. With the rapid rise in rental rates, a landlord that sets a price too low when marketing commences may be significantly below market 6 months later when they begin negotiating with a prospective tenant.
Notwithstanding that this pricing practice makes sense for landlords and sellers, it never ceases to be controversial with other brokers, and most importantly – the tenants. It can be understandably frustrating. I sometimes get expletive-laden emails from consumers that are frustrated with the practice.
Recently, I have seen thought leadership in my community discussing whether this $1 listing strategy erodes the value that commercial real estate brokers bring to listings. After all, as sales representatives and brokers, our expertise is in providing our clients with an expert valuation of the property. If we are not publicly establishing prices for listings, are we lessening our worth in the process? Is this a sleazy ‘smoke and mirrors’ marketing ploy borne out of ignorance?
In my opinion, it is just the opposite. I would argue that this trend is making our services more valuable.
$1 listings can complicate a buyer or tenant’s view of market options. However, I would argue it creates more value for seasoned commercial real estate professionals to assist the client to circumnavigate this nuanced pricing regime. The value of engaging commercial real estate professionals has never been more important.
What are your thoughts on the $1 strategy?
How prevalent is it in your market? We would love to hear from you. Reach out to members of Team Murray and Faldowski today.
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